Chapter Eight: The Future Of The State

V. The Globalization Of Taxation

As foreshadowed in Chapter Three, at some point in the next 20 years there will be a move towards global taxation standards. For companies, this process is already well under way, in the European Union with the Commission's intention to introduce a harmonized tax base (ie the rules under which taxable income is calculated) and globally with the rapprochement of IASB and GAAP, amounting to a coming together of Europe and the US. Tax rates are another matter. Countries won't readily give up their power to vary tax rates – already one of the few economic levers left to them; so rates will become one of the primary instruments of international fiscal (economic) competition.

There is a considerable body of opinion in favour of complete abolition of corporation tax. The ease with which an international company can escape or reduce taxes, combined with the need for countries to attract employment, will continue to drive a 'race to the bottom' for corporation tax. It would not be surprising to see it disappear altogether, well before 2050.

For people, fiscal globalization will be slower, but it will still happen. At first, perhaps, through the tax treatment of investment (gradually, all investment intermediaries will become tax-transparent); then through harmonization of retirement provision internationally (it is a real outrage that countries undervalue or ignore retirement contributions made by their citizens in other places). Finally, but not perhaps before 2030, countries will agree on harmonized rules for personal income tax, under which global income will be apportioned between them based on the amount of time a person has spent in each country. Evidently, such a system would be transparent for the tax-payer, and would allow inter-country competition based on tax rates.

Countries will not willingly agree to this system; but as individuals and their investments become more mobile they will have no choice. Initially, of course, the system will only apply among a smallish group of advanced nations (perhaps through the OECD), but eventually it will spread to all countries.

There will be a global currency and the World Bank will control it. There will be world-wide insurance for health-care, pensions etc, and such 'social' benefits will increasingly be provided by global, private companies. By 2050, therefore, countries will come to compete in terms of the quality of life, law and order, planning and zoning, 'culture', and other non-economic goods. If they overspend, they will be shunned by residents and will lose tax income.

By 2050 there will be no visa boundaries to travel or residence; it's inevitable of course that individuals will have tamper-proof biometric identification. That will probably be the case by as early as 2020 for international travellers.